Volkswagen AG (VW) is set to follow Tesla Inc’s lead with a high-profile price drop as the battle for global dominance in the electric vehicle (EV) segment intensifies, and local challengers race ahead in key market China.
A new version of Volkswagen’s flagship ID.3 electric car model would go on sale from the end of this month for just under 40,000 euros (US$42,586), the German company announced last week.
That is a 3,000 euro markdown from the current ID.3 price tag, putting it on par with US rival Tesla’s popular Model Y.
Photo: Reuters
Industry insiders see the move as a direct response to several rounds of price-cutting by the Elon Musk-owned company in the past few months, including discounts of up to 20 percent in Europe and the US.
In Germany, Tesla’s sales in January soared by more than 900 percent year-on-year, making it the top-selling electric vehicle brand in the country that month.
Although the 10-brand Volkswagen conglomerate last year was Europe’s leading electric vehicle manufacturer with 352,000 units sold, Tesla’s audacious markdowns have forced the German firm’s hand, industry analyst Ferdinand Dudenhoeffer said.
“Volkswagen sees how big the threat is from Tesla,” he said.
The German firm would have “no choice” but to enter “a price war” to defend its place in the hotly contested battery-powered vehicle market, even if that means profit margins take a hit for a while, Dudenhoeffer added.
Volkswagen CEO Oliver Blume has so far ruled out a general price drop on all electric vehicles, but the topic is bound to come up when the group presents last year’s financial results on Tuesday.
However, Musk is not Volkswagen’s only headache. In China, the world’s largest vehicle market, the industry’s electrification has shifted into higher gear and the German company is rapidly falling behind domestic competitors.
The Asian giant currently accounts for about 40 percent of Volkswagen sales, mostly vehicles with traditional internal combustion engines, giving it a market share in China of 16 percent.
However, in the electric vehicle segment, Volkswagen has eked out a market share of just 2.4 percent, trailing Tesla at 7.8 percent and China’s BYD Co (比亞迪) at 16 percent.
A slew of other Chinese automakers, such as Wuling Automobile Co (五菱汽車), Guangzhou Automobile Group Co (廣州汽車集團) and Chery Automobile Co (奇瑞汽車) are also outperforming VW, data compiled by financial daily Handelsblatt showed.
Fellow German automakers BMW AG and Mercedes-Benz AG are faring no better in China, with their electric models holding a market share of less than 1 percent each.
“In the world’s largest car market, German manufacturers have so far lagged behind local brands,” industry expert Stefan Bratzel said in his annual report on electromobility.
Of the more 5 five million electric vehicles sold in China last year, VW accounted for just 155,700.
“The times when German traditional carmakers could take their market shares [in China] for granted are gone,” said Gregor Sebastian, an analyst at the Mercator Institute for China Studies in Berlin.
“In Germany, driving performance remains a key factor” when customers choose a new vehicle, he said.
“But in China, where many people spend a lot of their driving time stuck in traffic jams and highly value new technologies, the car’s interaction with the smartphone and overall connectivity is more important,” Sebastian added.
Volkswagen chief operating officer Ralf Brandstaetter said the firm needed to make vehicles “in China, for China” if it wanted to boost sales there — and do so faster.
“The Chinese develop a new car in two and a half years. VW takes just under four years to do that,” Sueddeutsche Zeitung daily cited him as saying last week.
With Volkswagen expecting China to make major strides in autonomous driving in the near future, the German group last year said it was teaming up with Chinese artificial intelligence chip specialist Horizon Robotics Inc (地平線) to accelerate the development of smart driving technologies.
However, even with all the changes sweeping the industry, the reputation of German automakers remains a trump card in China, Sebastian said.
“The competition is tough, but German carmakers like Volkswagen have over 80 years experience building cars for different markets and customers,” he said. “That will give them an advantage.”
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